The Effect of COVID-19 on the Crypto Markets - Will it Continue?

DIGITEX Futures

The speed that the coronavirus has accelerated across the globe is startling. It seems almost surreal that less than three months ago, few people had even heard the word. Now, it’s impacting nearly every corner of life - including the cryptocurrency markets. So what may the future hold? 

Far from being purely a health crisis, the market events over the last few weeks have been felt across the entire global economy. Stocks had already started falling in February, along with the crypto markets. Our resident analyst Dave Reiter predicted there was worse to come in his February market round-up. 

He was right. On Monday, March 9, circuit breakers on the New York Stock Exchange halted trading for the first time in 20 years after a sharp drop of 7%.

Later that week, the same happened on Thursday, March 12. Only this time, the bottom also fell out of the cryptocurrency markets, along with the idea that Bitcoin is a “safe haven” asset uncorrelated to the stock markets.

Crypto’s biggest asset lost more than 40% of its value in a single day, wiping over $50 billion from its market cap. 

In percentage terms, it was the biggest fall in price since 2013. 

BitMEX Goes Down

Futures traders were hit hard. BitMEX went down twice, for 25 minutes each time, as the platform liquidated over $700m worth of long positions. Speculators on Twitter, including Sam Bankman-Fried, CEO of FTX, were quick to question whether or not this was a deliberate move. BitMEX denied it, but it’s certainly intriguing that the outages served the same purpose as the NYSE’s circuit breakers - halting trading to try and cushion the sharp drop. 

It’s worth pointing out here that part of the extensive testing we’ve been performing at Digitex is precisely to avoid the kind of incident suffered by BitMEX on March 12. We’re proud to say that our matching engine is capable of handling astronomical volumes, as evidenced by the peak loads during our trading contests. 

Want to try your hand at trading commission-free on the Digitex Futures exchange? With the beta version handling insane volume, you can practice your skills on our trading ladder interface and hone your strategy before the mainnet release on April 27, 2020.

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Getting back to the wider markets, as a general rule, bull markets are typically slower to take effect than bear markets, which can be sudden and brutal. Since the bloodbath, the crypto markets have started to show tentative signs of a recovery. Things are still extremely volatile, but by March 20, Bitcoin had registered gains up to a peak of $6,800 before falling back below the $6k mark at the end of the day. As things stand, we’re seeing an upward trend, albeit a gentle one. 

So What’s Behind the Recovery? 

There could be a couple of reasons why Bitcoin has been relatively quick to start a rebound while major indices such as the S&P 500 continue to languish. One is the decision of the U.S. Federal Reserve to cut interest rates to zero, meaning investors will have to look elsewhere. 

In the words of Morgan Creek Digital Founder, Anthony Pompliano, the Fed “just ran a $700 billion marketing campaign for Bitcoin.”

However, a closer look at the charts shows that although the news triggered a brief spike, the Fed wasn’t enough to hold up the Bitcoin price.

What seems more likely is the view of analyst Willy Woo. He believes that Bitcoin saw“flight to safety” where investors sold everything in favor of cash. If he’s right, there will be a bull market to follow, which reflects a similar pattern seen in the gold markets in 2018. 

Long Term Outlook

Of course, there are no crystal balls. But we could see a few different scenarios play out in the crypto markets. 

The COVID-19 crisis has underscored how much the world is now dependent on technology. Many of us are now able to work remotely due to advancements in telecommunications over the last few decades. 

We can credit artificial intelligence with having pinpointed the initial outbreak in Wuhan. The data generated during this crisis can be used to help governments and businesses become far better prepared for any future outbreaks. 

All of this is likely to be good news for investment in emerging technologies, which includes blockchain. 

Moreover, the Bitcoin Halving is on the way and the general view is that we can expect it to have a positive impact on the Bitcoin price in the medium-to-long term. If Bitcoin goes up when the rest of the markets are down, that’s great news for cryptocurrency adoption. 

And of course, the more newcomers to the cryptocurrency space looking for gains, the more potential users for the world’s only zero-fee futures trading platform!

Digitex’s tokenomics model means that the more users there are, the greater the demand for the DGTX token. Demand will drive price, which is why we believe that Digitex and the DGTX token will flourish. 

Let’s be realistic - when we open our doors on April 27, the coronavirus crisis may not yet be behind us. But as a digital platform boasting a token with solid utility and a unique value offering, we believe we’re better placed than most to weather the economic challenges.